Zenefits raises $500 million for its HR software and insurance hybrid, beating off new customers 'with a stick'
Zenefits, an all-in-one HR software service which only launched two years ago, announced today that it has raised $500 million in new funding led by Fidelity Management and TPG, valuing the company in the quad-unicorn realm of $4.5 billion.
That seems like a lot, and it is, especially for a company with a business model as unusual as Zenefits'. Most of Zenefits' services — onboarding, benefits, payroll for SMBs — are free. However it also serves as an insurance broker which has been a means for the company to post some impressive revenue numbers. In January 2014, the company had reached a $20 million annual run rate. And although it has been called one of the fastest-growing software companies ever, outpacing legendary firms like Salesforce, it could actually be described as an insurance company with an HR software arm. So while Zenefits sees its competitors as companies like Workday and Oracle, a more apt comparison might be made to New York's insurance startup Oscar, which recently raised $145 million at a $1.5B valuation. (But, just to be clear, Zenefits is a broker, selling insurance; while Oscar is an actual insurance company. Both, however, are trying to innovate the current sorry state of the healthcare industry.)
By any criteria, Zenefits' recent fundraising round is impressive. But what might be more impressive is the number of customers that are flocking to the Zenefits platform. The company says that in March of 2015, it added more new business customers than it had over the previous 15 months of its existence. With more than 10,000 companies serving more than 100,000 employees, Zenefits doesn't just have a larger valuation than Oscar, it has well over twice as many customers.
And the company is looking to aggressively add more business clients. Co-founder and chief executive Parker Conrad said that the new fund will be used to expand its sales and marketing team to that end.
"We are going after a huge market and a huge opportunity, and we think that the investments we are making today to acquire customers will have a big payoff," Conrad said. "One of the challenges that we have is that we sell to SMBs. There are a lot of companies out there that we need to be talking to." Acquiring new customers can be one of the biggest growth hurdles for companies working in the small and medium business space, mainly because there are simply so many SMBs in a diverse set of industries.
But when I asked if acquiring new customers had been one of the most difficult barriers to growth for the young company, Conrad said, "Not for us. We've been beating them off with a stick."